Donoghue Forlines Innovation ETF retains its Morningstar Medalist Rating of Silver. The portfolio maintains a cost advantage over competitors, priced within the second-lowest fee quintile among peers.  

 The strategy's sensible investment philosophy merits a High Process Pillar rating. Independent of the rating, analysis of the strategy's portfolio shows it has maintained an underweight position in quality exposure and an overweight in yield exposure compared with category peers. Low quality exposure is attributed to stocks with higher financial leverage and lower profitability. And a high yield exposure is rooted in holding high dividend-paying or buyback stocks. The team managing this passive strategy earns a Below Average People Pillar rating. The strategy's parent firm has some investor-friendly attributes, like a competitive lineup success ratio, but it is held back by below-average portfolio manager retention. As a result, the firm gets an Average Parent Pillar rating.

Analyst Rating

Apple

Broadcom

Merck

Johnson & Johnson

AbbVie

QUALCOMM

Netflix

Adobe

Cisco Systems

Morningstar's evaluation of this security's process aims to determine the likelihood that it will outperform its Morningstar Category index on a risk-adjusted basis over the long term. Donoghue Forlines Innovation ETF earns a High Process Pillar rating. The most meaningful contributor to the rating is the parent firm's five-year risk-adjusted success ratio of 100%. The measure indicates the percentage of a firm's funds that survived and outperformed their respective category's median Morningstar Risk-Adjusted Return for the period. This fund tracks an index, which also increases its process rating. Historical data, such as Morningstar's Active/Passive Barometer, shows that passively managed funds have generally outperformed their active counterparts, especially over longer time horizons. The size of the portfolio management team contributes to the process as well. With four portfolio managers at the helm, the fund is reasonably well-resourced.

The investment strategy as stated in the fund's prospectus is:  The investment seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the FCF US Quality Innovation Index.  To pursue its investment objective, the fund invests, under normal market circumstances, and at least 80% of its net assets (plus any borrowings for investment purposes) in component securities of the index. The index is designed to track the performance of a strategy that seeks to provide equity exposure to U.S. publicly traded companies with strong free cash flow and strong research and development ("R&D") investment. 

 The portfolio is overweight in healthcare and communication services relative to the category average by 15.5 and 3.5 percentage points, respectively. The sectors with low exposure compared to category peers are technology and financial services, with technology underweighting the average portfolio by 17.8 percentage points of assets and financial services similar to the average. The portfolio is positioned across 101 holdings and is diversified among those holdings. In its most recent portfolio, 34.7% of the strategy's assets were concentrated in the top 10 fund holdings, as opposed to the category’s 52.4% average. And in closing, in terms of portfolio turnover, looking at year-over-year movements, 161% of the fund's holdings have turned over, whether through increasing, decreasing, or changing a position.

High

Process

FCF Funds’s team earns a Below Average People Pillar rating. The team is strengthened by the size of its portfolio management team. With four portfolio managers at the helm, the fund is reasonably well-resourced. However, the rating is weakened by the managers' failure to consistently outperform peers at the funds they run, as measured by their combined three-year manager excess returns. The parent firm's five-year success ratio of 100% also holds the rating back. The measure indicates the percentage of a firm's funds that survived and beat their respective category's median return for the period. The parent's modest success ratio suggests that the firm could do better across its fund lineup.

Below Average

People

FCF Funds's track record as a steward is mixed, leading to an Average Parent Pillar rating. Longevity at the firm has been impressive. Its five-year success ratio is 100%, meaning that 100% of the products have both survived and beaten their respective category median. A high success ratio indicates good performance and provides insight into a firm’s discipline around investment strategy and product development. FCF Funds has undergone a bout of turnover in the past five years, as seen in its lower-than-average portfolio manager retention. This is a concern, as long-term stability tends to support positive results. An average tenure of only three years among the longest-tenured managers at FCF Funds is concerning. In isolation, seasoned teams tend to have more experience to draw upon should they need to weather turbulent market conditions.

Average

Parent

Donoghue Forlines Risk Managed Innovation ETF

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